Nine Key Changes for Mexico [In Spanish]

Nexos, 5/1/2012

In its May edition, Nexos features nine articles that comprise a guideline for national change to: improve the education system, eliminate regressive subsidies, unleash Pemex, open the Federal Electricity Commission, punish violence, integrate the Army to civic life, have governments make responsible purchases, make social protection a universal right, and adequately invest in the development of babies.

This post features a summary of each of these nine articles and their proposals for improving Mexico.

I. Educar mejor (Better Educate) by Juan Ramón de la Fuente
Education is a fundamental human right. Education promotes freedom and individual autonomy, which generate important benefits for collective development as a society. The education system in Mexico, however, presents worrying signs of backwardness: there are 5.4 million illiterate people in Mexico, 10 million people who did not finish elementary school, 16 million who did not finish middle school, 42% did not go through a basic education, and the average schooling age is of 8.6 years.

Desertion from schooling is another grave problem and although its causes are diverse, the economic factor is the main one. The state’s investment on students is very low, representing 6.5% of the country’s GDP. In the Latin American context, this figure is low when compared to Costa Rica (10.5%), Argentina (9.5%), Brazil (9%), Panama (8.3%), or Chile (8.2%).

The results from the PISA test administered by the OECD show that 51% of students age 15 do not have the minimum abilities in mathematics, 47% lack them in science, and 40% are lagging behind in reading skills. This shows that the education system in Mexico has been unable to teach students how to think. De la Fuente contends that a pedagogical model that is obsolete and relies in the memory has become perpetuated in Mexico. The author proposes a revision of the education model in order to devise a new education scheme that incorporates the pedagogic and technological advancement that a good education requires. In addition, this new education model should include ethical aspects.

It took 19 years since the reform to make middle school education a civic obligation, to make high school education mandatory. Today, only 1 in 4students who began elementary education, however, are able to conclude this education cycle. In the context of education at the university level, only 3 out of 10 students between the ages 19 and 24 study a university degree. The state budget allocated for this university sector represents a mere 0.69% of GDP.

De la Fuente warns that these youth without education nor employment become easy prey to join ranks inside organized crime organizations. The needs and pending issues in the education system are so grave, de la Fuente argues, that it is difficult to establish priorities.

II. Cancelar subsidios regresivos (Cancelling Regressive Subsidies) by Pedro Aspe
The federal government of Mexico subsidizes the consumption of certain goods and services, particularly that of fossil fuels and electricity. This has been justified with two basic arguments: 1) to reduce the fiscal weight upon households, and 2) to reduce the negative impact of the fluctuation in international prices of those goods.

In 2011, the subsidies on gasoline and electricity rose to almost 170,000,000 of Mexican pesos, that is, 5% of the budget income of the public sector. In a context of high international prices for oil, Aspe explains, these subsidies represent a huge weight upon the public treasury. For this reason, it is necessary to carry out an analysis that compares the benefits from the application of subsidies against the costs needed to grant them.

More than 50% of subsidies on gasoline and diesel are absorbed by the two socioeconomic groups with the highest levels of income. Aspe questions whether it is acceptable or not that these subsidies benefit only 20% of the wealthiest families in the country. On the other hand, electricity prices for Mexican industries are more than double the amount paid by companies in the United States and Canada.

Aspe proposes studies that analyze the impact of proposals such as: promoting the use of public transportation, having gas prices by zones of fuel consumption, offering different electricity prices depending on the technology used to generate it, and allowing direct commercialization of electricity in retail markets. It is also worth exploring how surplus from the petroleum industry can be invested in funds instead of being destined to finance subsidies.

III. Desamarrar Pemex (Unleash Pemex) by Jesús Reyes-Heroles G.G.
For long there has been discussion of an almost infinite amount of diagnoses and proposals to reform the petroleum sector in Mexico. The main consequence of this debate, Reyes-Heroles believes, is a general sense of lost opportunities in Pemex and for Mexico. The issues are plenty, but Reyes-Heroles lists what he believes are the main problems and hurdles for the transformation and growth of Pemex: 1) it is necessary to modify the Constitution to allow Pemex to associate with other companies, including those abroad, 2) the petroleum sector in Mexio will not improve as long as it continues to be exploited as a source of income for the three echelons of government, 3) given its nature as public enterprise, Pemex is subject to many rules and regulations that only generate inconsistencies, 4) the prices of Pemex are determined by a committee that only introduces market distortions and affect equality, 5) the system to allocate and train Pemex workers is very rigid, 6) Pemex needs comprehensive programs to eliminate its operational deficiencies, 7) in the eyes of the public, the largest problem in Pemex is corruption, 8) Pemex lacks an adequate system to identify, formulate, evaluate, and carry out an investment program, 9) Pemex has accumulated a passive labor force that amounts to 677,000,000 of Mexican pesos.

For these reasons, Reyes-Heroles emphasizes the need for a comprehensive reform of Pemex.

IV. Abrir la CFE (Open the Federal Electricity Commission) by Roberto Newell
One of the main distortions in the Mexican economy are electricity tariffs, which in average are much higher than those in other countries. According to Newell, this stems from 3 chronic problems in the Federal Electricity Commission (CFE): 1) the CFE hires more personnel than it needs to keep its production levels, 2) has a reserve margin for generation of electricity that is significantly higher than normal, and 3) the CFE suffers electricity losses because a high number of people obtain electricity without paying for it.

These tariff distortions have important consequences upon the economy and also affects the competitiveness of businesses and the well-being of consumers. Newell contends that the solution lies in the restructuring of the electricity sector in order to allow for competition along the chain of generation, transmission, and distribution of electricity. Newell proposes granting freedom to private producers of electricity to sell the energy and thus eliminate the monopoly of the CFE; having businesses that distribute electricity at the state level; charge higher electricity prices to those businesses that pump underground water, which would save aquifers; and reduce tariffs for the industrial sector, among other proposals.

V. Impuesto a la violencia (Tax on Violence) by Alejandro Hope
Between 2007 and 2011 the number of homicides in Mexico rose from 8,900 to 25,500 a year. In other words, the homicide rate practically tripled in this time. The problem is not limited to homicides, as kidnapping rates have also tripled and extortion rates rose to epidemic levels.

Hope argues that disorder generated disorder, as criminal groups were not punished for their actions. In the last six months, however, the number of homicides at the national level has decreased. Ciudad Juárez stands as an example with a monthly average fall of 60% since the end of 2010. Yet the “spiral phase” is rising upon the rest of the national territory. In the states of Nuevo León and Coahuila, for example, the homicide rates continue to rise above 30% annually.

Hope suggest to obtain intelligence by infiltrating into a given criminal group, as well as having the federal government announce that it would against criminal groups who commit multiple homicide of 8 or more victims; and successively reducing this limit until criminal groups have no other choice but to respect the law. The strategy would be effective and would act as a tax on violence.

VI. Acercar al Ejército a la vida civil (Integrate the Army to Civil Life) by Juan E. Pardinas
When will the Army return to its barracks? According to Pardinas, the answer to this question will determine in great part the future of Mexico. While it is still difficult to determine with exactitude when the Army will return to its barracks, the question that can be answered today is: what type of Army do Mexicans want to have back in its barracks?

For Pardinas, the answer lies in generating the necessary incentives so that recruited officers do not leave the Army. The author comments on the example set by the Reserve Officers’ Training Corps in the United States. He explains that incentives are based on meritocracy and academic rigor, which allows for the Army to generate more people with a bachelor’s degree than Army deserters. Pardinas argues that incorporating that model would modernize the Mexican Armed Forces through the generation of human capital.

Read full article here.

VII. Ahorrar en las compras públicas (Saving Money in Government Spending) by Jana Palacios Prieto
In the case of Mexico, the purchases by all government offices represent around 900,000,000 Mexican pesos, that is, between 30% and 40% of the total expenses by the public sector which in themselves represent between 6% and 10% of GDP. According to Palacios Prieto, efficiency in government spending could be an important factor to improve the optimization of public resources.

Contrary to other countries, Mexico has a decentralized system for spending regulation. A total of 3,247 buying units are registered for 310 different government offices and entities that use federal resources. Since 2009, the Unidad de Política de Contrataciones Pública (UPCP) was created with the mission to consolidate these efforts and so far has allowed for savings of 24.2% and 16.4%. The Instituto Mexicano del Seguro Social (IMSS) has also saved money after consolidating its expenditures.

The author proposes to establish a government unit with the purpose of exerting effective leadership to centralize all acquisitions of goods and services by the federal government. At the same time, it would be advisable to create a catalogue that establishes which are the products that are available for purchase and under what categories.

VIII. Universalizar la protección social (Make Social Protection Universal) by Miguel Székely Pardo
One of the greatest challenges Mexico faces in the 21st century is that still a large sector of the population does not have access to health services, an insurance against accidents and disease, and a guaranteed pension. Two factors explain this reality: 1) the supply of those services, which is still insufficient, and 2) the labor market, as access to social protection is granted only when the individual is hired in the formal economy.

Many European countries have developed systems that favor universal access to health services without depending upon employment. It would be desirable, according to Székely Pardo, to have in Mexico a social protection system that favors all citizens. The authors contends that the upcoming change in the presidency stands as an ideal moment to rethink this situation. In sum, it is important to use the year 2012 to promote the creation of a single protection system that is not linked to labor status and thus guarantees quality protection for all; while making sure that such a system is sustainable over time.

IX. Invertir en la primera infancia (Invest in the First Childhood) by Oliver Azuara
Health and productivity of individuals define become defined to a great extent during the gestation and his/her first years of life. This explains in great part why poverty is an inter-generational phenomenon because when the mother has a precarious health during her pregnancy and the child lacks food and resources during his/her first years of life, it is very likely that that child will not develop to his/her full potential. In that sense, effective poverty reduction requires attention to the new generations of people since their gestation.

There are very few measures and alternatives to stimulate children, given that the main responsibility lies upon their families. The effects of an unattended pregnancy and a childhood with food, affective, and health shortages came have negative effects on the latter life stages of the individual. It has been demonstrated that criminality levels in adulthood can be reduced if preventive measures were followed during childhood.

The authors warns that a large number of children in Mexico are growing up in unfavorable family environments, and that the country invests very little in services catered toward preschoolers. Azuara proposes for the country to incorporate an electronic life record for all its citizens, in order to track their human development since gestation. Additionally, the authors also suggests for Mexico to adopt a national network of banks with mother’s milk, homogenize a network of day care programs, have better elementary school coverage, make preschool mandatory, give breakfast to children in preschool, and have an early detection of abused children by their parents.